Functionality of Product Design Bars Registration as Trademark

Trademark Functionality
The Applicant’s Product Design

In Adams Manufacturing Corp. v. Rea, No. 12-1430 (W.D. Pa. March 12, 2014), a federal court in Pennsylvania upheld the determination of the U.S. Trademark Trial and Appeal Board (TTAB) that the shape and design of a suction cup with a concentric two-ring design were not eligible to be registered as a trademark because the product features in question were influenced by functional considerations.

The court cited the U.S. Supreme Court’s decision in Qualitex Co. v. Jacobson Products Co., 514 U.S. 159 (1995), which held that product characteristics that contribute to the function of the product cannot be protected by trademark law. In Qualitex, Justice Breyer wrote for the Court that,

The functionality doctrine prevents trademark law, which seeks to promote competition by protecting a firm’s reputation, from instead inhibiting legitimate competition by allowing a producer to control a useful product feature. It is the province of patent law, not trademark law, to encourage invention by granting inventors a monopoly over new product designs or functions for a limited time, after which competitors are free to use the innovation. If a product’s functional features could be used as trademarks, however, a monopoly over such features could be obtained without regard to whether they qualify as patents and could be extended forever (because trademarks may be renewed in perpetuity). That is to say, the Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity. The Lanham Act, furthermore, does not protect trade dress in a functional design simply because an investment has been made to the public to associate a particular functional feature with a single manufacturer or seller.

In the Adams Manufacturing case, the district court observed that the applicant had held a utility patent on the suction cup design, and that the applicant did not apply for a trademark registration until it was “nearing the expiration of its utility patent.” According to the court, both the patent and the advertising materials for the product emphasized that the two-ring design had the specific functional purpose of diffusing light, and thereby prevented damage to the product from the convergence of light rays on a single focal point.

The court opined that “[t]he fact that other suction cup designs will also diffuse light does not take away from the basic functionality of the Adams two-ring design.” The court quoted the Seventh Circuit’s decision in Georgia-Pacific Consumer Products LP v. Kimberly-Clark Corp., 647 F. 3d. 723, 727 (7th Cir. 2011), for the proposition that “the design in question does not have to be the only possible design to be functional; rather, it is functional if it represents one of many solutions to a problem.” (Internal quotation marks omitted.)

Print Friendly    Send article as PDF   
Posted in Intellectual Property Law | Tagged | Comments Off on Functionality of Product Design Bars Registration as Trademark

Fair Use Bars Copyright Infringement in Politician Photo Case

fair use
Stock photo. Copyright: Depositphotos / zurijeta

The U.S. District Court for the Northern District of California held that the fair use doctrine barred copyright claims by a politician and lawyer against the operators of a website that reproduced her photo without her permission. Dhillon v. Does 1-10, No. C 13-01465 (N.D. Cal. Feb. 25, 2014).

PLAINTIFF’S PHOTOGRAPH. In 2008, Harmeet Dhillon, an attorney who currently serves as Chairman of the Republican Party chapter of San Francisco, California, was a candidate for a seat in the California state legislative assembly. In the course of her campaign, she commissioned photographs of herself, including a headshot set against a gray background. She used the headshot in the campaign and in subsequent publicity activities.

UNAUTHORIZED USE OF PLAINTIFF’S PHOTOGRAPH. On February 12, 2013, the website published an anonymous article about the Ms. Dhillon entitled “Meet Harmeet.” Alongside the article appeared an unauthorized copy of Ms. Dhillon’s headshot photo. Ms. Dhillon registered the copyright in the photograph and filed a copyright infringement lawsuit against the operator(s) of The defendants moved for summary judgment, contending that the copyright claim was barred by the doctrine of fair use. In a decision dated February 25, 2014, the court granted the defendants’ motion and dismissed the claim.

THE FAIR USE DEFENSE. Fair use is an exception to the exclusive protection of copyright under U.S. law. It permits certain limited uses of copyrighted works without the permission of the author or owner of the copyright. Section 107 of the U.S. Copyright Act  contains a list of the various purposes for which the reproduction of a particular work may be considered fair. Those purposes include criticism, comment, news reporting, teaching, scholarship, and research. Section 107 also identifies the following four non-exclusive factors to be considered by courts in determining whether a particular use is fair:

  • The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes;
  • The nature of the copyrighted work;
  • The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
  • The effect of the use upon the potential market for, or value of, the copyrighted work.

THE COURT’S REASONING. In concluding that the defendants’ unauthorized use was shielded by the fair use defense, the court took into consideration the following evidence:

  • The website on which the photo was reproduced was a non-commercial website, and there was no evidence that the defendants obtained any financial benefit as a result of using the photo.
  • The defendants’ use of the photo was “transformative,” because, although the plaintiff had commissioned the creation of the photo to promote her political candidacy, the defendants had used the photo in connection with an article that was critical of the plaintiff’s political positions.
  • It would not have been feasible for the defendants to have used less than the entire photo.
  • There was no evidence or allegation “that any market ever existed for the sale or licensing of the headshot photo, or that such a market might have developed at any future time.” Therefore, there was no evidence of “any impact upon the economic market for the headshot photo,” as required under the fourth fair use factor.

In light of these facts, the court determined that the fair use factors weighed in favor of the defendants, and that the plaintiff’s claim should be dismissed. The court did not, however, grant the defendants’ motion for sanctions because the court determined that the plaintiff’s position “was not completely unreasonable.”

Print Friendly    Send article as PDF   
Posted in General, Intellectual Property Law | Tagged , | Comments Off on Fair Use Bars Copyright Infringement in Politician Photo Case

SCOTUS Allows False Advertising Claims vs Printer Cartridge Manufacturer

Cleaning printer toner cartridgeOn March 25, 2014, the Supreme Court of the United States unanimously ruled that Static Control Components, Inc., a seller of components for remanufacturing of used laser printer toner cartridges, may pursue false advertising claims against Lexmark International, Inc., a laser toner cartridge manufacturer. Lexmark International, Inc. v. Static Control Components, Inc., No. 12–873 (U.S. Sup. Ct. Mar. 25, 2014).

LEXMARK’S PLAN TO FOIL CARTRIDGE REMANUFACTURING. Lexmark had sold its cartridges under a “Prebate” program, in which customers could obtain a discount if they agreed to return their used cartridges to Lexmark instead of selling them to purveyors of “remanufactured” cartridges. Each Prebate cartridge contained a miocrochip that disabled the empty cartridge unless Lexmark replaced the chip. Static Control reverse-engineered microchips to mimic Lexmark’s chips, so that competitors of Lexmark could remanufacturer used Lexmark cartridges and sell them in the aftermarket.

STATIC CONTROL’S FALSE ADVERTISING COUNTERCLAIMS. In 2002, Lexmark sued Static Control, claiming, among other things, that its reverse-engineered chips circumvented a technological measure that controlled access to copyrighted software inside Lexmark printers, in violation of the Digital Millennium Copyright Act (DMCA). In addition, Lexmark sent letters to cartridge remanufacturers, claiming that using Static Control microchips would violate Lexmark licenses and constitute copyright infringement. Static Control counterclaimed against Lexmark for alleged antitrust violations and false advertising. Specifically, Static Control alleged that Lexmark “falsely informed customers that SCC’s products infringe Lexmark’s purported intellectual property,” and “misled . . . customers of SCC’s products that license agreements prohibit remanufacturing Lexmark toner cartridges, when no license agreements actually exist,” causing Static Control’s customers to believe that Static Control is engaging in illegal conduct and thereby damaging Static Control’s business and reputation.

PROCEEDINGS IN THE LOWER COURTS. In the course of ten years of litigation, including a jury trial, Lexmark’s claims against Static Control were all dismissed. See Static Control Components, Inc. v. Lexmark International, Inc., Nos. 09-6287/6288/6449 (6th Cir. Aug. 29, 2012). In the first instance, Static Control’s false advertising counterclaim was also dismissed, with the district court ruling that Static Components lacked “prudential standing” to bring the Lanham Act claim. On appeal, however, the U.S. Court of Appeals for the Sixth Circuit reversed, finding that it was sufficient for standing purposes that Static Components “alleged a cognizable interest in its business reputation and sales to manufacturers and sufficiently alleged that th[o]se interests were harmed by Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal conduct.” Lexmark petitioned the Supreme Court for a writ of certiorari, which the Court granted.

SUPREME COURT REJECTS “PRUDENTIAL” STANDING DISMISSAL. In affirming the Sixth Circuit’s ruling, the Supreme Court rejected the notion that “prudential” standing principles could be invoked to bar Static Control’s claim. “Just as a court cannot apply its independent policy judgment to recognize a cause of action that Congress has denied,” Justice Antonin  Scalia wrote for the Court, “it cannot limit a cause of action that Congress has created merely because ‘prudence’ dictates.”

STANDING FOR FALSE ADVERTISING CLAIMS. In its March 25, 2014 ruling, the Supreme Court ruled that to “invoke the Lanham Act’s cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” The element of proximate cause means that “a plaintiff suing under §1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” However, according to Justice Scalia, proximate cause does not require that there be direct competition between the claimant and the defendant, and the claimant need not establish a direct link between consumer confusion and its injuries.

Print Friendly
PDF24    Send article as PDF   
Posted in Commercial Law, Intellectual Property Law | Tagged | Comments Off on SCOTUS Allows False Advertising Claims vs Printer Cartridge Manufacturer

Ecuadorian IP Institute Registers Traditional Knowledge of Indigenous Community

Traditional Knowledge
Tsáchila man near Santo Domingo, Ecuador.
© calliopejen1.
Licensed under
CC BY-SA 2.0 license.

Yesterday, at a conference at its offices in Guayaquil, the Ecuadorian Intellectual Property Institute (IEPI) presented its 2013 annual report. IEPI, 2013 Informe de Rendición de Cuentas. As noted in an article published in the newspaper El Comercio, IEPI has been involved in a pilot project to register items of traditional knowledge of the Tsáchila tribe, an indigenous community that inhabits the province of Santo Domingo de los Tsáchilas. According to the report, IEPI entered 460 registrations of genetic resources associated with Tsáchila traditional knowledge. IEPI plans soon to commence registration of traditional clothing styles, cultural expressions, dances, and crafts. This year, the institute will expand its efforts to register elements of traditional knowledge to include the patrimony of the Cofán and Awa indigenous communities.

A biologically megadiverse country, Ecuador has taken steps to safeguard its genetic diversity and indigenous knowledge against erosion and piracy, as provided in the Convention on Biological Diversity (CBD) and the Nagoya Protocol on Access and Benefit-sharing. Ecuador ratified the CBD in 1993, but so far has only signed but not yet ratified the Nagoya Protocol. However, its internal laws reflect a strong preference for protecting the traditions, customs, and ancestral knowledge of its indigenous communities. For example, Article 57(12) of the Ecuadorian Constitution guarantees to such communities the rights–

… to maintain, protect, and develop collective knowledge; their scientific information, technologies, and ancestral knowledge; genetic resources that contain biological and agricultural biodiversity, including the right to recover, promote, and protect their sacred and ritual places, as well as plants, animals, minerals, and ecosystems within their territories; and the knowledge of the resources and properties of animals and plants.

In addition, Article 9 of Ecuador’s Organic Law for Food Sovereignty prohibits “all forms of misappropriation of collective knowledge and ancestral know-how.”

In pursuit of the national policy of conserving and protecting traditional knowledge, the Ecuadorian government has launched a number of initiatives such as Project VICAT, a program of the national Secretary of Higher Education, Science, Technology, and Innovation (Senescyt), whose objective is to create a scientific database that can quantify the loss of ancestral knowledge. See Los esfuerzos en Ecuador por frenar la pérdida de conocimientos ancestrales, (10 Jan. 2014). For its part, in addition to working with indigenous communities to catalog their traditional knowledge, IEPI has prepared a draft law for the protection of traditional knowledge, cultural expressions, and genetic resources. IEPI also created the following video to raise popular awareness of the need for protection of traditional knowledge.

embedded by Embedded Video

YouTube Direkt

by Shawn N. Sullivan, March 21, 2014.

Print Friendly
PDF24    Send article as PDF   
Posted in Agricultural Law, Biotechnology Law, Intellectual Property Law | Tagged , | Comments Off on Ecuadorian IP Institute Registers Traditional Knowledge of Indigenous Community

Chilean Government Pulls Proposed Revision of Plant Variety Rights Law

President withdraws bill to revise Chile's plant variety rights lawYesterday, after years of controversy, the government of newly re-installed Chilean President Michelle Bachelet withdrew a proposal to revise Chile’s plant variety rights law. The proposed modification was first introduced in January 2009, when Bachelet was serving her first term as president. Its objective was to bring the Chilean law into conformity with the 1991 Act of the International Convention for the Protection of New Varieties of Plants (known by its French acronym as UPOV).

Ximena Rincón, who serves as Secretary General of the Presidency, announced the withdrawal at a press conference, in which she stated:

Today various decisions have been taken, among them an important one is the withdrawal of the law of plant varieties from the legislative process, to conduct an analysis that will take into account all that has become known in our country and internationally regarding this subject, and that protects the rights of agricultural communities, whether they be mid-sized or small farmers, and the country’s patrimony of seeds.

Press Release, Ministra Ximena Rincón confirmó retiro del proyecto de Ley Monsanto (17 Mar. 2014).

CNN Chile’s report on President Bachelet’s decision appears below.

embedded by Embedded Video

YouTube Direkt

Chile’s accession to the 1991 UPOV Act was the subject of an extensive 2011 decision by the Chilean Constitutional Court, which concluded that the South American country’s ratification of the treaty did not infringe the Chilean constitution.

Print Friendly    Send article as PDF   
Posted in Biotechnology Law, Intellectual Property Law | Tagged , | Comments Off on Chilean Government Pulls Proposed Revision of Plant Variety Rights Law

European Parliament to Consider Trade Secrets Directive

Trade SecretsTomorrow the European Parliament’s Committee on Legal Affairs will discuss the European Commission’s proposed trade secrets directive, whose aim is to protect undisclosed know-how and business information against their unlawful acquisition, use, and disclosure. See Draft Agenda, European Parliament Committee on Legal Affairs, JURI(2014)0319_1. Among other things, the draft directive introduces a common definition of trade secrets, as well as means through which victims of trade secret misappropriation can obtain redress. See European Commission Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquistion, use and disclosure COM(2013) 813 final, 2013/0402 (COD).


Print Friendly    Send article as PDF   
Posted in Intellectual Property Law | Tagged | Comments Off on European Parliament to Consider Trade Secrets Directive

Wyoming District Court to Decide Fracking Fluids Trade Secrets Issue

trade secretsIn Powder River Basin Resource Council v. Wyoming Oil and Gas Conservation Commission, No. S-13-01202014 WY 37 (Wyo. Mar. 12, 2014), the Wyoming Supreme Court reversed and remanded a state district court’s decision that the chemical components of fluids used in hydraulic fracturing (a/k/a “fracking”), which energy companies must disclose to a state agency, are trade secrets and thus exempt from public scrutiny under the Wyoming Public Records Act (WPRA).

A group of environmental organizations requested that the Supervisor of the Wyoming Oil and Gas Conservation Commission publicly release the lists of ingredients of fracking fluids that companies had provided to the Commission as required by the Commission’s regulations. The Supervisor provided some information in response to the request, but redacted certain information from the materials on the ground that it was exempt from disclosure as trade secrets under the WPRA, Wyo. Stat. Ann. § 16-4-203(d). The redacted information included specific chemical compound names, chemical compound types, Chemical Abstract Service (CAS) numbers, and concentrations for each ingredient in a specific formula.

The Wyoming courts have not elaborated on the meaning of trade secrets as used in the WRPA. Therefore, in determining whether the fluid ingredients were exempt from disclosure, the Supervisor relied upon the definition of trade secrets in the Wyoming Uniform Trade Secrets Act.

When the environmental groups filed an action under the Wyoming Administrative Procedure Act (WAPA), Wyo. Stat. Ann. § 16-3-101, to challenge the Supervisor’s decision, the Wyoming District Court upheld the decision. It reviewed the definition of “trade secret” under three different statutes–the federal Freedom Information Act, the Restatement (Third) of Unfair Competition § 39, and the Uniform Trade Secrets Act (Wyo. Stat. Ann. §  40-24-101). The court concluded that information about the specific identities of hydraulic fracturing chemicals would constitute trade secrets under the definitions provided by any of those statutes. However, the court did not itself examine whether the specific information withheld by the Supervisor constituted trade secrets. Instead, the trial court applied the WAPA standard for judicial review of administrative actions and limited its inquiry to whether the Supervisor had acted reasonably.

On appeal, the Wyoming Supreme Court opined that the proper procedure by which a party may seek judicial review of the denial of a request for information under the Public Records Act is not to file an action under the WAPA, but to “apply to the district court for an order directing the custodian of the record to show cause why inspection should not be permitted.” In such a proceeding, the district court must independently determine whether the requested information is exempt under the Public Records Act, without deferring to the judgment of the records custodian. Accordingly, the Supreme Court remanded the matter to the district court with the following instruction:

[O]n presentation of an adequate application for an order to show cause, the district court should conduct appropriate proceedings and determine whether the information Appellants seek constitutes trade secrets or not, with the burden of showing that they do upon the custodian (here the Supervisor) and any intervenors.


Print Friendly
PDF24    Send article as PDF   
Posted in Intellectual Property Law | Tagged | Comments Off on Wyoming District Court to Decide Fracking Fluids Trade Secrets Issue

Asian-American Band’s Uphill Battle to Register “The Slants” as Trademark

An October 20, 2013 story on National Public Radio (NPR) reports that an Asian-American music group from Portland, Oregon, has been fighting with the U.S. Patent and Trademark office for four years in an attempt to register their name–“The Slants”–as a service mark.

The U.S. Lanham Act, 15 U.S.C. Section 1052(a), provides in part that a trademark may be refused registration if it “[c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”

In office actions, the USPTO denied registration of The Slants’ name on the ground that it is “derogatory.” Citing newspaper articles, Wikipedia, and a variety of other sources, the USPTO trademark examiner asserted that,

 [T]he likely meaning of ‘THE SLANTS’ [is] a negative term regarding the shape of the eyes of certain persons of Asian descent.…This refers to persons of Asian descent in a disparaging manner because it is an inherently offensive term that has a long history of being used to deride and mock a physical feature of those individuals.

The band requested that the USPTO reconsider its refusal to register the mark. However, the examiner upheld the earlier determination. The band appealed that decision to the Trademark Trial and Appeal Board (TTAB). In the appeal, the band argued that its name was not disparaging, but that even if it were, the band had the right freely to express itself through the use of a term that some find disparaging. In a 26 September 2013 decision, the TTAB affirmed the decision to deny registration of the mark, noting among other things that “the band’s entry in Wikipedia is of record and references that, ‘The band name, The Slants, is derived from an ethnic slur for Asians.’” The TTAB characterized the band as arguing that it “intentionally adopted the mark because it is disparaging to some, but we should ignore that because [the band] is Asian and should not be perceived as intending to disparage other Asians but, rather, as redefining the term in a positive way.” According to the TTAB,

 The focus of the inquiry into whether a mark is disparaging is not on applicant’s race but rather on the referenced group’s perception of the likely meaning of the mark. The evidence clearly shows both that members of the referenced group ascribe the derogatory meaning based on applicant’s manner of use and that members of the referenced group find it objectionable. There are no “other elements” in the mark to affect its meaning, and there is nothing about the way the mark is used in the marketplace from which one would understand the term as meaning anything other than an Asian person. Thus, the refusal is properly based on the perceptions of the referenced group and not on applicant’s or his band-mates’ ethnic background.

The TTAB emphasized that its decision only prevented the band from registering the mark and did “not affect [its] right to use it. No conduct is proscribed, and no tangible form of expression is suppressed.” For these reasons, the TTAB concluded that the band’s “First Amendment rights would not be abridged by the refusal to register [its] mark.”

The NPR story explains that the band is preparing an appeal to the U.S. Court of Appeals for the Federal Circuit, which reviews decisions of the TTAB.

Print Friendly
PDF24    Send article as PDF   
Posted in Intellectual Property Law | Tagged | Comments Off on Asian-American Band’s Uphill Battle to Register “The Slants” as Trademark

Challenge to IRS “Nonenforcement” of Church Political Activity Ban Survives

Challenge to IRS "Nonenforcement" of Church Political Activity Ban SurvivesThe U.S. District Court for the Western District of Wisconsin declined to dismiss a nonprofit foundation’s lawsuit against the United States Internal Revenue Service (IRS), challenging what it characterized as that agency’s policy of not enforcing a legal requirement that tax-exempt churches and religious organizations not not participate in or intervene in political campaigns on behalf of, or in opposition to, candidates for public office. Freedom from Religion Foundation v. Shulman, No. 12-C-0818 (W.D. Wis. Aug. 19, 2013).

Challenge to IRS Nonenforcement of Church Political Activity Ban SurvivesTHE FOUNDATION’S CLAIM. The U.S. Internal Revenue Code, 26 U.S.C. § 501(c)(3), provides that entities exempt from federal income taxation as charities must not participate in or intervene in any political campaign on behalf of, or in opposition to, any candidate for public office. The Freedom from Religion Foundation (the “Foundation”), itself a 501(c)(23) charity, sued the IRS, alleging that it had a policy of not enforcing this requirement against tax-exempt churches and religious organizations. According to the Foundation, the IRS “is conferring a benefit on religious organizations (the ability to participate in political campaigns) that it denies to all other § 501(c)(3) organizations, including the Foundation.”

Challenge to IRS "Nonenforcement" of Ban on Church Political Activity SurvivesTHE IRS’S ARGUMENTS. The IRS moved to dismiss the Foundation’s lawsuit, arguing that (1) the Foundation did not have legal standing to pursue the action; and (2) the action was barred by sovereign immunity. With regard to standing, the IRS cited court decisions establishing that although individual taxpayers can challenge the IRS’s actions that directly affect them, it is difficult for anyone to establish its standing to challenge a broadly applicable IRS practice.

Challenge to IRS "Nonenforcement" of Church Political Activity Ban SurvivesRULING ON STANDING. The court rejected the IRS’s argument that the Foundation lacked standing. Citing the U.S. Supreme Court’s decision in Summers v. Earth Island Institute, 555 U.S. 488, 498 (2009), the court explained that,

[A] plaintiff must show that he is under threat of suffering “injury in fact” that is concrete and partcularized; the threat must be actual and imminent, not conjectural or hypothetical; it must be fairly traceable to the challenged action of the defendant; and it must be likely that a favorable judicial decision will prevent or redress the injury.

Among other things, the court in the instant case disagreed with the Service’s contention that the Foundation was not “personally affected by the challenged policy,” but rather was “seeking to vindicate a generalized interest in making sure that the government is administered in accordance with the Constitution.” To the contrary, the court concluded that the Foundation was “suing to vindicate its own right to equal treatment”–a circumstance which distinguished the Foundation’s lawsuit from those in which standing was denied to taxpayers merely interested in ensuring that the agency is administered in accordance with the law.

RULING ON SOVEREIGN IMMUNITY. The court found that the Foundation’s lawsuit was not barred by sovereign immunity because it was brought pursuant to a provision of the Administrative Procedures Act, 5 U.S.C. § 702, which provides in part that,

An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States….


 by Shawn N. Sullivan, August 28, 2013

Print Friendly    Send article as PDF   
Posted in General, Nonprofit Law, Tax Law | Tagged | Comments Off on Challenge to IRS “Nonenforcement” of Church Political Activity Ban Survives

Trade Secrets Plaintiff Sanctioned; Couldn’t Identify Stolen Secrets

Trade Secrets Plaintiff SanctionedA state appellate court in California affirmed an award of more than US$200,000 against an investment group that acquired the assets of All American Semiconductor, Inc. (AASI) in bankruptcy and then sued a competitor, claiming that it had misappropriated AASI’s trade secrets regarding the design of computer memory modules. All American Semiconductor, LLC v. APX Technology Corp., No. G046605 (Cal. App. Aug. 14, 2013). In its unpublished opinion, the Court of Appeal for the Fourth District based its ruling primarily on the fact that the plaintiff never identified any specific trade secrets that it claimed were unlawfully taken by the defendant, APX Technology Corporation.

Trade Secrets Plaintiff SanctionedIn purchasing AASI’s assets, the plaintiff purportedly believed that it was acquiring trade secrets consisting of the designs for memory modules that AASI permitted third parties, including APX, to manufacture. However, after the acquisition, the plaintiff was unable to locate any such designs. The plaintiff surmised that the designs had been stolen by AASI’s former general manager, who allegedly took the designs to a company that manufactured memory modules in an arrangement with APX. Therefore, the plaintiff sued the former manager, his new company, and APX for trade secret misappropriation and other alleged wrongdoing.

APX asked the court for a summary ruling on the trade secret claim, contending that APX only manufactured modules of its own design. The plaintiff did not provide any evidence of specific memory module designs purportedly misappropriated by APX. The Superior Court of Orange County granted APX’s motion, finding no evidence that APX misappropriated any specific design. Ruling on a post-trial motion, the trial court also ordered the plaintiff to pay US$202,291.50 in attorneys’ fees incurred by APX in its defense of the trade secret claims.

On appeal, the appellate court affirmed. The court observed that,

It is the plaintiff’s burden to prove the existence of the claimed trade secret … and to prove his status as an owner of the trade secret… Put another way, the plaintiff may not leave mysterious exactly what pieces of information are the trade secrets and must do more than just identify a kind of technology and then invite the court to hund through the details in search of items meeting the statutory description.

(Citations and internal quotation marks omitted.)

Trade Secrets Plaintiff SanctionedThe court noted that, in attempting to meet this burden, the plaintiff cited 135 products manufactured by the defendants which purportedly were “identical” to memory modules formerly sold by AASI. According to the plaintiffs, this alleged similarity was evidence of copying and misappropriation. The court disagreed, reasoning that,

[T]his “evidence” of product line similarity does not state a trade secret claim. As discussed, plaintiff never identified the nature of any trade secret used to create any particular memory module, including how the secret manner of creating the product is unique in the industry and adds value because it is unknown by others. The fact two companies have similar or identical iterations of a product undercuts the notion a trade secret is necessary to create them…. Additionally, products cannot themselves be trade secrets if they reveal their constituent parts to those in the trade or public who handle or disassemble them because reverse engineering is not a trade secret violation.

The appellate court held that the trial court properly awarded attorney’s fees to the defendant, because the California Uniform Trade Secrets Act permits such awards where “a claim of [trade secret] misappropriation is made in bad faith.” “The trial court,” it concluded, “reasonably could infer subjective bad faith from plaintiff’s persistence in its claims without evidence….”

 by Shawn N. Sullivan, August 27, 2013



Print Friendly    Send article as PDF   
Posted in Intellectual Property Law | Tagged | Comments Off on Trade Secrets Plaintiff Sanctioned; Couldn’t Identify Stolen Secrets